Expedition officials compared the act to Neil Armstrong’s planting of the American flag on the moon, and the US Geological Survey determined, to a degree that should satisfy United Nations Convention on the Land of the Sea requirements (should the US eventually ratify it), that there’s not much ground for resource disputes in the area.

But Russia’s staking a tricolor claim to the North Pole was widely viewed as an act of aggression, “openly choreographed publicity stunt” or not.

Last week, symbolism became tanks and airstrikes as Russia celebrated the first anniversary of its deepwater claim by getting physical with the Republic of Georgia after several years of shadowboxing.

Accounts of Russia’s Arctic adventure framed it in terms of two larger themes: Russia’s restored sense of confidence and the international competition for oil and natural gas.

The first theme seems to be dominating Western interpretations of what’s happening in the Caucasus, but the long history of ethnic and geopolitical conflict is ripe territory for substantive argument on behalf of several interpretations.  

James Traub tells the long story in The New York Times, providing solid background for the present conflict:

The combination of Vladimir Putin’s reforms and the dizzying rise in the price of oil and gas have rapidly restored Russia to the status of world power. And Mr. Putin has harnessed that power in the service of aggressive nationalism.

Marshall Goldman, a leading Russia scholar, argues in a recent book that Mr. Putin has established a “petrostate,” in which oil and gas are strategically deployed as punishments, rewards and threats. The author details the lengths to which Mr. Putin has gone to retain control over the delivery of natural gas from Central Asia to the West. A proposed alternative pipeline would skirt Russia and run through Georgia, as an oil pipeline now does. “If Georgia collapses in turmoil,” Mr. Goldman notes, “investors will not put up the money for a bypass pipeline.” And so, he concludes, Mr. Putin has done his best to destabilize the Saakashvili regime.

(snip)

Russia threatens Georgia, but Georgia threatens Abkhazia and South Ossetia. Russia looks like a crocodile to Georgia, but Georgia looks to Russia like the cats’ paw of the West. One party has all the hard power it could want, the other all the soft. And now, while the world was looking elsewhere, the frozen conflict between them has thawed and cracked. It will take a great deal of care and attention even to put things back to where they were before.

Traub, in a characterization troubling to many realists, including The American Conservative’s Daniel Larison, seems to validate the viewpoint that Russia (read: ex-KGB official and current Prime Minister Vladimir Putin) and Russia alone is stuck in a Cold War mindset.
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Putin has responded to US efforts to establish a missile-defense presence in the Czech Republic, on his doorstep; the former president (it was Putin, however, who left Beijing for the Russian military’s staging ground for its current operations, not current President Dmitry Medvedev) warned, in stark terms, of Russia’s concern about the eastward creep of the North Atlantic Treaty Organization (NATO); and NATO remains a military alliance, despite the fact that its raison d’etre--the Union of Soviet Socialist Republics--no longer exists.

Here’s Larison:

The thing that I find most frustrating, and what I think Russians may also find very frustrating, is that even after years of long Russian forebearance in the face of things Moscow regarded as serious provocations and humiliations Russia has continually been portrayed as an expansionist, revisionist and (in McCain’s crazy world) “revanchist.” Many American pols were taking this view of Russia when it was quite weak, c. 1999, and you have them taking it up now that Russia is resurgent, and at neither time was it the correct view.

Traub buys into the view that recent events have made it harder to advance a realist view of Russia:

In a recent essay, the archrealist Henry Kissinger argued that Putin-era policy had been driven not by dreams of restored glory, but by “a quest for a reliable strategic partner, with America being the preferred choice.” Some Russia experts on the left, like Stephen Cohen of Princeton, have taken a similar view. But Russia’s bellicose behavior, and now the hostilities along its border, make it increasingly difficult to act on such a premise without seeming naïve.

On this point, however, Kissinger and Cohen are right. One of the impediments to building such a partnership between Washington and Moscow is the assumption that Moscow is a revisionist power that must be thwarted at every step. The other obvious impediments are the steady eastward creep of NATO and the introduction of U.S. weapons systems into current central European member states. Depressingly, some of the foreign policy advisors to the candidates don’t seem to understand this at all. Just as worrying as Kagan’s misleading democracy/autocracy struggle model are the views of one of Obama’s Russia advisors, Michael McFaul:

He attributes Russia’s hostility to further NATO expansion less to geostrategic calculations than to what he says is Mr. Putin’s cold war mentality. The essential Russian calculus, he says, is, “Anything we can do to weaken the U.S. is good for Russia.”

There’s that Cold War mentality again.

Anatol Lieven, professor in the department of war studies at King’s College London, cuts to the heart of the matter in The Times of London:

Many factors are involved in the present conflict but the central one is straightforward: the majority of the Ossetes living south of the main Caucasus range in Georgia wish to unite with the Ossetes living to the north, in an autonomous republic of the Russian Federation; and the Georgians, regarding South Ossetia as both a legal and an historic part of their national territory, refuse to accept this.

(snip)

Russia’s policy is driven by a mixture of emotion and calculation. The Russian security establishment likes the Ossetes, who have been Russian allies for more than 250 years. They loathe the Georgians for their anti-Russian nationalism and alliance with the US. For a long time they hoped to use South Ossetia initially to keep Georgia within the Soviet Union and later in a Russian sphere of influence.

That Russian ambition has been abandoned largely in the face of the Georgians’ determination to escape from this influence.

What remains is an absolute determination not to be defeated by Georgia and not to suffer the humiliation of having to abandon Russia’s South Ossete client state, with everything that this would mean for Russian prestige in other areas. Vladimir Putin’s Kremlin made it clear again and again that if Georgia attacked South Ossetia, Russia would fight. Georgian advocates in the West claimed that Moscow was only bluffing. It wasn’t.

The second theme--the international competition for oil and natural gas--is of more practical concern for investors.

Georgian President Mikheil Saakashvili’s decision to send troops into South Ossetia was stupid, rash and probably informed by an assumption that Western backers of a regional democracy would provide substantive support. As well, Medvedev’s assertion that Moscow hopes to restore peace to the region are overly simplistic.

Georgia provides a crucial link of East and West in the global transit of oil and gas. Three major pipelines connecting energy sources in the Caucasus and Central Asia to European markets pass through its territory.
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The South Caucasus pipeline, operated by BP (NYSE: BP) and transport of Azerbaijani natural gas through Georgia, has been closed temporarily as of Tuesday morning. The South Caucasus pipeline is also known as (as in the map below) the Baku-Tbilisi-Erzurum pipeline. It carries production from BP’s Shah Deniz natural gas field, daily output from which topped about 14.2 million cubic meters of gas as well as more than 30,000 barrels of condensate at the end of 2007.


Source: Thomas Blomberg, via Wikipedia

The 150,000-barrel-a-day Baku-Supsa oil pipeline operated by the Azerbaijan International Operating Co, whose largest shareholder is BP, was already shut down. The Baku-Tbilisi-Ceyhan pipeline, the second-longest in the world, is already out of action after a fire last week on its Turkish stretch. Kurdish rebels took responsibility for sabotaging the pipeline, which usually provides around 1 million barrels of Caspian crude to international markets.

The South Caucasus pipeline is an important part of the plan for the Nabucco pipeline to Austria, which would deliver natural gas directly to the European Union, bypassing Russia entirely, if built. The Russian government, which controls Gazprom, the world’s largest gas company, wants Europe to forget about Nabucco in favor of its own pipelines. Russia wants Europe’s energy to pass through its borders, not through independent countries.
 
The US and Canada will conduct a joint expedition to map the western Arctic this fall, an effort announced Monday that has interesting significance in light of Moscow’s current effort to preserve and extend its energy-based resurgence. It’s far too early to contemplate a new Cold War, but the coming days could provide significant clues about where we’ll be in five, 10 or 20 years.

This is a crucial period. Oil is becoming increasingly scarce; transporting natural gas is becoming increasingly critical. We’re about to find out how the West will deal with a re-emerging global power.

Speaking Engagements

Fall is the perfect time to enjoy Washington, DC’s outdoor treasures and catch a glimpse of nature’s splendor. And this year you can enjoy the immediate aftermath of the presidential election in the seat of the federal government.

Join Neil George, Elliott Gue and me for the DC Money Show Nov. 6-8, 2008, at The Wardman Park Marriott.

Click here or call 800-970-4355 and refer to priority code 011362 to register as my guest.

We also have a special invitation for our readers. KCI Communications, Inc., publisher of Maple Leaf Memo, is organizing an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal. Participants will have the opportunity to meet and chat with me and my colleagues Gregg Early, Neil George and Elliott Gue.

This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.

It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.

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